OVO delivers a 34% CO2 intensity improvement
By Stephen Harris and Justin DeKoszmovszky Friday 16 October 2015
OVO was founded to challenge the status quo. There’s nothing we enjoy more than getting our teeth into a complicated problem and finding a simple solution which makes things better. Today we announced something we’ve been working on for a while: we’ve innovated a way to replace coal with gas and renewables in our fuel mix.
OVO has always tried to find the best balance between clean energy and affordability. We call this approach ‘Mainstream Green’. How does swapping gas for coal fit with this strategy? Well, we’ve often said (including here and here) that we were unhappy with how much coal was reported in our fuel mix, and we’ve been puzzling over how to get rid of it without energy becoming more expensive for our customers. Before we go into what we came up with, a bit of background might be helpful.
Firstly, why was there so much coal in our mix to start with - doesn’t OVO care about the environment? The answer to that, as you might have guessed, is a resounding ‘Yes we do!’
In actual fact, the amount of coal reported was more to do with a quirk in the reporting process than a reflection of the actual electricity we were buying. Because OVO is independent and doesn’t own its own power stations, we were treated as if most of our energy came from the UK’s ‘residual mix’, basically the unwanted leftover stuff once the Big 6 suppliers have taken the electricity they want from their power stations. The “residual mix”, unsurprisingly is full of coal. Sure, we could buy direct from generators, but this would hamper our flexibility to go into the market and get the best deals every day for customers.
This frustrating state of affairs meant not only that customers weren’t seeing the full picture about the fuel content of the energy they were buying, but also that OVO was stuck with a fuel mix far dirtier than we would like. One thing we knew we could do was to increase the amount of renewables we used, and we did. In April this year, we more than doubled it for our three core tariffs. This change is rolling into effect for all new and renewing customers and our fuel mix next year will show a much higher renewables content as a result. But that wasn’t enough. The mix would still be too dirty, and adding more renewables would have meant pushing up prices. The problem was the coal.
So our trading, policy and sustainability teams put their thinking caps on and came up with something totally new for us and for the market. The idea was to buy gas generated electricity instead of the ‘residual mix’, but to do it in a way which didn’t limit our ability to go into the market and grab the best deals. This is how we did it:
For every unit of electricity that a gas generator produces, they issue a Generator Declaration confirming the energy has been sold to a supplier.
Gas generators owned by the Big 6 have issued these declarations to their own supply businesses so they can be used for fuel mix reporting. But independent gas generators don’t own supply businesses, so have no use for them.
We realised that we could buy these declarations from the independent generators and use them to take control of our fuel mix. And no longer using the residual mix would mean... goodbye coal!
So we linked up with our friends at Calon Energy, fixed a price, and voila - for the first time a market mechanism had been created which can reward independent gas generators for the lower carbon intensity of their electricity versus coal.
What does it mean for OVO? Well, our fuel mix is drastically improved and is now 85% gas and 15% renewables. Carbon intensity has fallen 34%, from 486 to of 321 grams of CO2 per KWh. That’s 296,000 tonnes of CO2, equivalent to taking 62,000 cars off the road*. And for our customers, it means you can rest assured that the electricity you’re using is scrubbed clean of the UK’s dirtiest fuel source without driving up cost.
If you are paying close attention, you’ll have noticed that our share of renewables actually decreased by 11 percentage points from 26% to 15%. This is because, despite being very coal heavy, the residual mix actually included 12% renewables last year, another calculation quirk. As mentioned above, our 33% renewables minimum is rolling into effect so by the end of this year our renewables share will be much higher, and will keep rising as our awesome Greener tariff keeps growing! Changes by the Government in this year’s Budget mean next year we may potentially be able to provide more renewable energy, so watch this space for more on that.
So we’re pretty pleased with the results on this one. We think we’ve made fuel mix reporting easier and more transparent for customers to understand, and we’ve made a huge reduction in the carbon intensity of our three core tariffs (the fourth is 100% green already). But, being OVO, we’re nowhere near satisfied. There’s still plenty of exciting elements to our Mainstream Green strategy in the pipeline, and we’ll be blogging about them right here in the next few months.